Setting a price for your product can be tricky. The first thing you are thinking about is that you want to make a profit. At the same time, you don’t want to be unrealistic with your prices so you don’t chase customers away. Finding the right balance for your business can be the difference between its success and it’s failure. The best case scenario for your business is a situation where your product price takes care of your fixed and variable cost, is also solid enough for your potential customers/market and can get you a healthy profit at the end of the day.
Here, we are going to look at a few things you should consider before setting a price for your product.
1. Have a good understanding of your costs
For you to hit the right spot when setting a price for your product, you have to have a good grasp of your business costs. If your business is going to make a profit, you have to take some vital things into consideration. Knowing your fixed and variable costs and planning for future changes is important. Your product price should make room for possible changes in what it costs to run your business. Keep in mind that after chipping down on all costs and what it cost to produce one unit you have to strike a balance, whereby your costs are covered and you can still turn a profit.
2. Have a good understanding of your customers
A very important practice for any business is the study of customers. Having a good knowledge of your customer base can help you figure out the right price for your product. Taking a look at their spelling patterns can help you determine what they are willing to spend on your product. Placing them into categories can help you also when you’re trying to price products of different grades. Obviously, a product of higher grade would attract a higher price, so what you need to figure out is the kind of customer that would appreciate the higher grade and be willing to pay for it.
3. Have a good understanding of your competition
One of the quickest and most efficient ways of pricing your product is by studying the other companies in your sector. Try to figure out how they arrive at their own prices, it should give a better view of what your prices should be. If there is a regular price that cuts across the industry, you could choose to position your product uniquely with your prices. It can help you decide whether you want to stick with the regular prices or separate yourself a bit.
4. Have a good understanding of your market
Just as earlier mentioned, you need to keep yourself abreast of the market where you operate. There some things you can not predict like a sudden spike in the price of your raw materials. These sudden changes can affect your competitiveness if you don’t pay attention to them. There may be times when you need to adjust your prices to make sure your business does not run at a loss. There might also be times when you can afford to offer discounts or promos. A lot of customers appreciate the gesture, of course, you have to make sure your business is still making a profit.